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Hut 8 Mining Corp
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Good morning, and welcome to the Q1 earnings call for Hut 8 Mining Corp. My name is Sheryl, and I will be your operator for today's call. [Operator Instructions] Please note that this conference call is being recorded.I will now turn the call over to Shane Downey. Sir, you may begin.
Thank you, Sheryl. Good morning, ladies and gentlemen, and welcome to the 2021 First quarter earnings call for Hut 8 Mining Corp.Personally, it's been a busy first 2 weeks, and I'm very pleased to join the great team that Jaime has assembled at Hut 8.With that said, I will start out with some short disclaimer language and then jump into a summary of our Q1 results. I'll then turn things over to Jaime, then we'll open it up for some Q&A.In addition to the press release issued earlier today, you can find our financial statements and MD&A on both SEDAR and shortly on our website at hut8mining.com. Unless noted otherwise, all amounts referred to are denominated in Canadian dollars.I'd like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable securities legislation regarding the future performance of Hut 8 Mining Corp. and its subsidiaries. These statements are current expectations and as such, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's annual information form for the year ended December 31, 2020.At this time, I will walk through our financial highlights. Hut 8 achieved record level of financial results in the quarter ended March 31, 2021, based on the combination of a strong mining results of 539 new bitcoin and robust bitcoin price appreciation well in excess of the company's marginal cost to mine.Total revenue was $32.5 million versus $12.7 million in the first quarter of 2020. In addition to our core revenue stream, being digital assets mined, we also recognized $1.4 million of hosting services revenue and $530,000 of interest income associated with our bitcoin lending arrangement with Genesis. We view these revenue streams as strategically valuable and that they provide us fee out currency cash flows, which helps to sustain our strategy to hold bitcoin rather than sell bitcoin to fund the fee at denominated operating expenses.Revenue from digital assets mined was $30.6 million, up from $12.7 million in the first quarter of 2020. Revenue growth with respect to digital asset mining came notwithstanding a decrease in the quantity of digital assets mined caused by a combination of the halving events, which occurred in May 2020 and increased network difficulty. As a combined result of these factors, we mined 539 bitcoin in Q1 2021 versus 1,116 bitcoin in the prior year period. However, the May 2020 halving was followed by a strong appreciation in the price of bitcoin. The price of bitcoin averaged approximately USD 45,000 in the first quarter of 2021 versus approximately USD 8,000 in the prior year period. So roughly a 5.5x increase.In terms of operating costs, site operating costs for Q1 2021 were $14.6 million compared to $12.6 million in the prior year quarter. Site operating costs consist primarily of electricity costs as well as personnel, network monitoring and equipment repair and maintenance costs. The total cost increased due to Hut 8's continued expansion and adding more miners to its bitcoin mining fleet. The cost of mine in each bitcoin for Q1 2021 was approximately $27,000 compared with approximately $11,300 in the prior year period, with the increase primarily due to the May 2020 halving event. And just for clarity, that cost of mine is a fully loaded cost, inclusive of electricity, T&D and associated fees as well as personnel, repairs and maintenance, et cetera.Other corporate operating expenses excluding noncash share-based compensation expense for Q1 2021 were $3.2 million compared to Q1 2020 of approximately $700,000 with the increase resulting from a onetime payroll expense of $1.2 million, higher professional fees as well as head count driven increase in salary costs.All that said, Hut 8 achieved adjusted EBITDA of $16 million for Q1 2021 compared to a loss of $560,000 in Q1 of 2020, driven by bitcoin mining profitability in the period.In terms of noncash items, we recognized $2.8 million of share-based compensation expense in the quarter, which relates to previously announced equity awards, primarily to the recently expanded management team. We will be reporting lower quarterly share-based compensation expense for the balance of 2021.We also recorded an unrealized gain on digital asset loan receivable of $22.9 million, which relates to the mark-to-market on our 1,000 bitcoin loan to Genesis. Given balance sheet classification as a loan, the related mark-to-market flows through our P&L rather than OCI. I will address the $6.8 million income tax recovery, which relates to changes in deferred taxes versus December 2020 that's part of my brief balance sheet commentary, in a moment.Shifting to balance sheet and capitalization. We raised $77.5 million of capital in early January, and we've put that capital to work, as Jaime will discuss in some detail. One of our first actions was to repay the USD 20 million loan facility with Genesis, removing all leverage from our balance sheet and fundamentally derisking our bitcoin holdings.Balance sheet accounting remains relatively straightforward, continue to mark our substantial bitcoin holdings to market, which results in unrealized gains or losses. And given bitcoin price action in Q1, they were obviously gains. Digital assets held in custody continue to mark-to-market through OCI on an after-tax basis. These assets had a fair market value of $168 million as of March 31.Digital assets loaned are separately classified on the balance sheet and the corresponding mark-to-market gain flows through the P&L, as I previously mentioned. These assets had a fair market value of $74 million as of March 31. Therefore, our combined self-mined bitcoin balance of over 3,200 bitcoin at a value of $242 million as of March 31.Deferred tax liability of $14.4 million is primarily a function of the unrealized gains associated with bitcoin. The $112 million balance of unrealized gains in OCI reflects an $88 million gain relative to December 31, 2020, net of a $21.2 million deferred tax expense. The above deferred tax charges results in the $6.8 million income tax recovery that's hitting our P&L in Q1.Finally, I can confirm that as of May 12, our total bitcoin balance both held in custody and loaned stands at approximately 3,522 bitcoin.And with that, I'll turn things over to Jaime.
Thank you so much, Shane. It's great to have you on board. I also want to thank all of you on the line for taking the time to join us this morning. I want to thank our shareholders for staying strong and having faith in us during periods of volatility and growth. I also want to thank the Hut 8 team for enabling me to execute on my plan to build Canada's next big tech story.For those of you who may not know, I come from the traditional technology space, and my passion is helping to create value by driving growth and innovation in great Canadian companies like Hut 8. I joined Hut 8 because I saw an opportunity to transform and drive innovation at a cutting-edge technology company sitting at the forefront of the next great technological revolution.My goal over the past 5 months has been to create a growth in revenue diversification strategy for Hut 8 and bring value to our shareholders. My focus has been on hiring a best-in-class leadership team to design a master plan to grow shareholder value regardless of digital asset volatility. A plan to drive innovation and corporate growth that puts the environment, our communities and governance into priority view at our boardroom table.We've worked to create ways to execute on our mission to HODL and earn fee it while building ancillary business lines and revenue generation like growing out our hosting line of business. We started the year by raising capital and paying off our outstanding debt obligation, thereby fundamentally reducing exposure and strengthening our balance sheet.We then leveraged our extraordinary balance of self-mine bitcoin and initiated strategic partnerships with Genesis and subsequently Galaxy Digital, who are both providing us the ability to earn fee income on our bitcoin balance. We executed on diversifying our fleet so that we could continue to build our bitcoin reserves and HODL but also capitalize on the growing blockchain and application development ecosystem in Ethereum by purchasing best-in-class GPU-based mining equipment directly from NVIDIA. If you haven't taken the time to do so yet, I strongly encourage you to read our recently published FAQ to get a better understanding of this strategic initiative.I'd also like to take this opportunity to address the controversy sparked last night by Elon Musk regarding bitcoin's energy consumption. And for me, this needs to start with a conversation about value, and how much value we think bitcoin creates for society.Bitcoin's ESG footprint isn't just about the environment. On social equity, bitcoin enables people to escape tyranny, censorship, financial violence, and improves access to financial sovereignty. On governance, bitcoin is permissionless and runs on open source software. On ESG, bitcoin mining presents many opportunities to accelerate the global energy transition to renewables.For good ideas and true innovation, you need human interaction, conflict, argument, debate. And we think conversations like these are great ones to be having. Hut 8 is more than a digital asset miner. We are accelerators and innovators in the blockchain and big data ecosystem and have a responsibility to build and explore alternative mining practices. The future of our industry and our commitment to our investors is to continuously push new creative ways of thinking, which drive our competitive advantage.Just like we invest in hardware to get ahead of supply chain constraints, the same thoughtful approach needs to be applied to our energy and ESG objectives. We signed a deal earlier this year with Validus Power with a goal of furthering not only Hut 8 power capacity, but our ESG initiatives and sustainable mining practices. This partnership enables us to utilize leading-edge technologies to harness unproductive energy sources and turn them into productive digital energy that can now be transported over space and time in the form of digital currency. We hired a Head of Sustainability. His first priority is to build us a path to carbon neutrality.We joined the Crypto Climate Accord, the accord inspired by the Paris Climate Agreement, is a private sector-led initiative for the entire crypto community focused on decarbonizing the cryptocurrency industry. This is the start of many initiatives we have planned in prioritizing the environment and insight into how we look at building the narrative and being leaders in sustainable mining practices.The fear, uncertainty and doubt that the ecosystem is not capable of growth or innovation is misguided. The future growth of the digital asset mining ecosystem relies on competitiveness and innovation, on skills and productivity with the environment that is not only a priority, but a shareholder in our business.With that, I'd like to ask Sheryl to open the lines for Q&A.
[Operator Instructions] Our first question comes from Deepak Kaushal.
I've just got a couple of detailed questions on the results and then a couple of big picture questions, if I may. So just to start off, Shane, welcome on board. Just a question on the utilization rate in Q1. What kind of utilization rates are you guys running? And was there any kind of capacity loss that you didn't expect you due to either weather in early January or as you were upgrading to new machines?
I can take that one, Deepak. We did have -- we did face some curtailment of energy in February, primarily due to extreme weather conditions that were in Alberta at that time. And I think as you know ourselves and most bitcoin miners during peak power conditions when communities require energy, we allow the energy to go back to the grid and therefore, go back to the community. So during some harsh periods in January and February, we redirected power to the grid accordingly.
Got it. Okay. That makes sense. And that helps explain some of the number differences certainly. On the cost side to that, I know that you guys have undertaken in the past some cost rationalization on the operations side. And then there's been some more increases with some new executives on board. Are you now at a fully baked cost structure, was that fully baked in Q1? Or what can we expect in terms of quarterly costs going forward, directionally, if not quantitatively?
Yes. I think directionally, we are -- we have the team in place that we need to have in place.
Okay. And was that -- I assume that wasn't fully baked in, in Q1? Or would you expect the Q1 cost structure to be consistent going forward?
I think Q1, and I'll defer to Shane on the detail. Q1 had some cost in it that we don't expect to repeat going forward. He referenced some of the share-based compensation items being not expected to repeat at these levels. Shane, I don't know if you have any other detail to add for Deepak on that?
Yes. I was going to add the line item I would look to, Deepak, is professional fees, I do think is, for sure, heavy. Tanya Woods who joined us a few months ago as well, has been leading the thorough governance review, as Jaime referenced in her comments. And there's definitely some cost flowing through there that won't be fully repeating.So -- and then the caveat to that, as you can imagine, for sure, I need to dig in further with the team, and we'll really have a more refined quarterly view going forward. But I expect from a salary and benefits perspective, that we're more or less there, recognizing that there is in the $1.9 million salary and benefit figure, $1.2 million of that, I would truly characterize as one-time in nature, that relates to a payroll tax payments related to vested RSUs.
Got it. And in terms of the direct costs for -- that are including gross mining margin to operate the mine, is that fully optimized now? Now that you've severed the professional service agreement with Ethereum, et cetera?
I don't think I wouldn't say we're -- it's fully done yet, Deepak. As you know, we hired Jason Zaluski in February as our new Head of Technology, and we're still going through all of the nuts and bolts of our operations. So I wouldn't say that's fully complete yet. And then the other thing, as I know you know, is we've got -- we have equipment still coming in from MicroBT over the next few months as well as when the NVIDIA cards come online also over the next few months, that's going to change the cost profile as well.
Okay. That's helpful. Thanks for delving into those details for me. The 2 big picture questions I have. One is on M&A. Jaime, we've seen a bit of horse trading going on in the market in recent weeks. Wondering what your thoughts are on M&A in general from a big picture. How active do you want Hut 8 to be in terms of M&A? And what are your kind of high-level criteria or objectives from that perspective?
Yes. I think we have to think through that as a team. So I wouldn't be comfortable commenting on that at this point, Deepak.
Okay. Okay. And then I'll just jump to my last one then. I'm just curious on -- good comments and thoughts on the carbonization or decarbonization of the mining industry for crypto. Looking forward to seeing how you guys innovate through that. When I think about costs, like interim costs like carbon taxes and carbon credits, are those something that you guys -- will impact your financials in the near term? How should I think about that in the near term as you move towards a more fully carbon-neutral footprint?
I think it's too soon to give you that answer with any definition, Deepak. But certainly, as we look at our expansion with Validus Power, we expect our costs associated with carbon to be much more controlled.
Okay. Okay. So I'll put those questions on the shelf then and as you guys evolve with the new team and the new thinking, I'll come back with those.
Yes, absolutely. Anytime, Deepak. Thanks.
Our next question comes from [ Brett ].
I'll start with a few questions around expansion. Has there been a full transition from Slush Pool to Foundry for mining at this point? There was that announcement. Has that been fully transitioned at this point, exiting the quarter?
Yes. We're fully transitioned to Foundry and the Foundry is our largest pool, so the majority of our hash rate is in the Foundry pool, but we also have some with Luxor as I hope you saw the announcement of us in the Luxor pool, and that also plays into our intention to mine Ethereum with the new NVIDIA card purchase. So we'll use the Luxor pool to mine the Ethereum network, but initially to continue to settle in bitcoin. Yes, that's all.
Great. And the other question around expansion with NVIDIA. Are we -- is it a fully baked in rackable solution that you're getting from NVIDIA? Or are you partnering with some other system integrator to do the build-out in the summer for it with the NVIDIA and GPUs?
So the -- all that has been announced so far that the actual direct purchase of the NVIDIA cards that we've purchased from NVIDIA, and we're still sorting through the further details associated with that program.
Okay. So there could be some more CapEx, slight more CapEx on that build-out then once it gets fully integrated and operationally over the course of the summer then?
Yes, yes.
Okay. Great. And then, I guess, another metric, operational metric that I'm looking at because a lot of other mining -- miners do it Bitfarms as an example, is they kind of do a petahash per megawatt. Do you know what your current kind of expectation is for that for efficiency once you get the new expansions in place, like what the petahash per megawatt would be? If you have that metric or were maybe you would move towards that for shareholders so they understand where your expansion is in the efficiency?
Yes. So we don't have that metric. And as you know, the GPU mining equipment is measured in gigahash. So we do need to sort through how we kind of represent those 2 metrics. So I can't answer it today, but it is something that we're sorting through, and we'll work to have for our next earnings results.
Great. And I'll just follow-up with one more item. With regard to current capacity, I know there's indications on -- that you have 9 institutional BlockBoxes in effect. Are those like newly built BlockBoxes? Or are they -- like, with those institutional clients that are outside of in-house mining, are those recent expansions? Because I believe 94 is what you currently indicate is in-house and those 9 would be separate from the 94 that you have in terms of black box data centers?
So I think about it more in megawatts. So we have 109 megawatts actively in production, 100 megawatts being used for self-mining, all currently ASIC-based. And 9 megawatts being used for hosting.
Our next question comes from [ Luke Cunningham ].
I want to thank you personally as a shareholder. The team that you've created is, I believe, second to none, even with the 104 price. Yes. And we're holding on tight. And I just want to again, thank you because our TSFAs are showing up really good. And I see green in more ways than one for Hut.
Well, thank you, Luke.
I'll let you get back to your job, keep driving the ship forward.
That's so sweet. Thank you for taking the time this morning.
Yes. You're plagued with a lot of wonderful problems, but you're handling them very, very well. I think the team is marvelous.
Thank you so much. I really appreciate it.
Our next question comes from [ Kevin ].
Can you just give us a little insight on the -- what's miner, the M30s that are coming in? Are you going to replace existing equipment? Just some insight on that.
Yes. So initially, we will replace existing equipment because we are at maximum power capacity. But as you know, we're looking to stand up the initial 35 megawatts of the new site through our partnership with Validus this fall. So we will monitor conditions in the environment and see what the productive life is of the equipment that we take offline to be replaced with the MicroBT units over the next few months.
Okay. With regard to Validus, where do you think you're going to go? I mean, do you have land established for that? How should we think about sort of the footprint there and the infrastructure build.
Yes. So we haven't announced the exact location yet, but I can tell you it will be in the province of Alberta.
Okay. So that will make it easier from an operational perspective, given...
Yes.
Okay.
Yes, exactly. It will allow us to continue to take advantage of the tech shop that we have. I think, as you know, we've got -- we do our own on-site repair and maintenance of our equipment. We've got an on-site tech shop in Medicine Hat, which also does the repair and maintenance for our equipment in Drumheller. So again, we see a lot of value-driving continued economies of scale by remaining in Alberta. And we love, obviously, the province, the climate is incredibly favorable for bitcoin mining and the local government, again, very supportive of this kind of innovation in the province. So we're really, really happy just to continue to expand in Alberta and work with the team there.
Well, thank you for giving us more insight on your growth trajectory. That's very helpful. Just a little bit of more help on the timing. I know you've talked about fall time frame, but do you think that's before the end of the third quarter? Or how should we think about that?
No, I think it's -- we're working through. Obviously, there's a lot of detailed planning to go into this, standing up this initial incremental 35 megawatts. So I think a reasonable expectation would be the October, November time frame. But as I say, we're still very much going through detailed planning exercise right now.
Okay. Can you speak to the pool fees at Luxor? I'm not familiar with that one and how they might compare with Foundry?
Both Foundry and Luxor's pool fees highly competitive in the space and have provided significant savings from what we've paid historically.
Welcome onboard, Shane.
Thanks, [ Kevin ].
Our next question comes from [ Manpreet Singh ].
Jaime, I was just wondering, can you provide some insight on the Validus deal in terms of you guys have 100 megawatts that you guys are going to be taking on. You provided information on consumption for 4 of those megawatts with the recent NVIDIA purchase. Can you just fill in on the other 96 megawatts, what are expansion plans?
So as I just said with Kevin, we're working through standing up the initial 35 megawatts. So that 35 megawatts is what we are looking to stand up later this year, and then we will build a path for there. So this arrangement with Validus gives us up to 100 megawatts, and we do need to work through the timing associated with that full build-out, but the first 35 will come this fall.
Okay. Sorry, I had missed that. Is there any more information you can provide on the Validus deal in terms of how the profits or the generation of BTC is going to be divvied in terms of the supplier of the flare gas Validus and yourself. Is there any information? I mean, we have very limited information on this deal so far.
Yes. So there's quite a bit of information provided in the MD&A that was released this morning. So I encourage you to look to that. The -- it's really -- there's not a split involved of bitcoin. So we -- it's more of a typical power purchase agreement, although we do have -- we've got a rate buydown element in it, so that our effective rate will be incredibly competitive.So if you don't include the rate buydown, the rate is less than CAD 0.03 inclusive. So it's -- we're really excited about this partnership. And we pay energy costs as we traditionally would.
Well, I didn't know it's CAD 0.03. That's really good, actually. A question -- a follow-up question from yesterday's update regarding NASDAQ. It said there's plans since you've applied since March. Has there been any back and forth? Where are we at right now? How long do you anticipate for us to get a better answer on that, successful listing, unsuccessful listing? When do you anticipate to share that with shareholders?
We anticipate as we get concrete information that we can continue to share, we will. At this point, I can't give any further guidance than what was released yesterday publicly.
Our next question comes from [ Sally ].
I have a couple of questions. I'll start with the first. It's around the communication strategy for the corporate. You have been observing recently that there is a lot of voice around institutions first kind of strategy for the corporate. And that comes with a kind of a specific treatment that eventually go around information protection when it comes to the NASDAQ, when it comes to other aspects of the corporate.I would love to understand how do you see this moving forward for the corporate in the past 4 months, given the fact that up to recently, I think it's still majority around retail investors. And again, the sentiment on the market is that lots of transformation, such as the NASDAQ listing should have been communicated regularly to the people, although we do understand that there is a limitation around the regulatory constraints for the information to be shared. So I'd like to take your views around that.
Yes. So my views around that are, look, we are -- we very much err on the side of conservatism. I want to make sure that when we're communicating, we're confident in what's being communicated. And we really look to the leadership of the larger publicly traded technology firms, and we're trying to model a much more kind of conservative traditional approach to how we interact and how we disseminate information.
The second question would be around the time line accuracy. If I may, when initially the MicroBT announced, it was announced for 6 months. In today's announcement for MD&A, it was said in August, which is almost an 8-month kind of a thing. And it's becoming a kind of a thing that time lines do extend.I do understand that, so far, for example, for NVIDIA, would give in summer, which is a period this time. It's not even a month kind of a thing. So how would you see the communication around those kind of things? The major events that eventually are being tracked by investors in order for us to size the potential gains for the corporate by the event happening? And with this slippages on the time line, how do you think the communication could have been driven or could happen, so we can at least have a clear figure around when things would happen, given the fact that they are communicated to us earlier on?
Right. So NVIDIA, we've communicated that we expect all of the equipment to be up and hashing by the end of August. And then with respect to the MicroBT equipment, the first batch of 400 units was delivered in February and the balance we expect to be up and hashing by the end of July. So the 6-month window being February through July.As you know, we do have to work very closely with the supply chain, given the constraints that exist in the supply chain, but we are confident based on our most recent communications with our partners that the end of July is still the time frame that we should expect. And we are expecting deliveries over the next few weeks.
That's super. I would go back as a follow-up question to the earlier question asked around the operational costs. We could see that there is an increase on the investor and public relation cost, regulatory cost. What would drive regulatory cost to increase and public relations, given the fact that we haven't seen much being done on both fronts?
So I would add to that. Obviously, as we look -- we've gone through the process of working with NASDAQ. There's incremental regulatory costs associated with that. And with respect to -- we've actually done quite a bit of work with respect to marketing and public relations as you would see through what's been happening on social media. We've been incredibly much more active in interactions with the media in a variety of different events. So the -- that's where those costs will be related to, yes.
That's super. The next question is around the estimates again. Initially on, I think, 16th of February, the company did announce that it can generate given the current capacity and network conditions around 6.8 bitcoin per day. On 24th announcement, it was only 6.1. In today's announcement with the quarterly results, for the quarter, I think it was 5.9 bitcoin per day. And for the period between 24th of March and 12th of May, it's even, I think, [ 5.87 or 5.88 ], which is less than 6.8. Given the fact that on the period after March, there was a reduction on the difficulty given what happened on China. So we thought that eventually, there will be an increased productivity for the month of April. So how would you comment on that given the fact that the number was given initially around 6.8 bitcoin per day?
So any time those numbers are put out, they're based on the economics of the day at full capacity. But as you know, those are variables that change on a daily basis. There are impacts to power. We spoke earlier about moving power to the communities when they need them for peak power purposes. So ideal conditions don't always exist. Then of course, we have seen a lot of movement, both up and down on the difficulty side.So it's really -- you kind of -- you need to run the estimates almost on a daily basis given what's happening in the broader environment. So they're very much for guidance purposes only, and they absolutely fluctuate on a daily basis based on what's actually happening in the field.
But don't you see the disperse between 6.8 and 5.9 big given the overall conservatism on the way that the corporates is being run? Because I thought when 6.8 was announced initially that this was a conservative kind of thing given that as we established initially, we are very -- we are following a very conservative kind of commission. So -- so I think on the communications side?
Yes. I believe that was an estimate on a day. And again, we very much counsel that the estimates need to be made directly by investors using all of the variables and information publicly available.
That's great. The next question is around the ESG score. Would we -- should we expect something around an ESG score for the corporate, given that the recent announcement around the appointment of Sustainability Head? Because, again, lots of that is -- yes.
Yes. So Ronnie just joined us a few weeks ago, and he's working very, very hard at establishing baselines and objective data that we can then set targets against. And as these programs get built out, we'll absolutely communicate them. But our first step, obviously, was hiring a dedicated resource to focus on this area for us, and establish objective measurements that we can then build programs against. So that's all very much a work in progress.
That's super. Then a question is around the strategy. Today, we are having 2,000 coin on the yield account to the Genesis. Given the announcement today, we have 1,500 coin hypothetically sitting idle. So what's the plan? Why don't this kind of agreement to the Foundry eventually end up everything on a yield account? What's the corporate view around the number of coins, which are significant 1,500 that are sitting seemingly idle for now?
Well, I think it it's great that our shareholders are so excited about this pivot that we've made to start to earn yield on bitcoin. This is something that only we started doing in January, as you know. So -- and it's an area that, obviously, Shane has only been with us now for a few weeks as well. But it certainly unchanged list of things to dig into is how can we best continue to put our bitcoin to work and generate yield, while it continues to accumulate in value on our balance sheet, assuming that the bitcoin appreciates in value itself.So, I can't answer what Shane is going to come back with, but it's great to hear that you support the strategy that we've employed to start generating yield with that balance. And certainly, it's something that we'll look into further under Shane's tenure.
That's super. My last question is around BlockBoxes. With the agreement with -- just to understand, for any new expansion now that you are going to have, would we need to have another set of BlockBoxes from Bitfury? Or would we have this part of the Validus agreement that they will be building the data centers within which the minor would be working? So I'm not so much sure how to understand around the BlockBoxes future. Are they going to continue with us part of the infrastructure for the mining?
So yes, we do really like the container-based system for our data centers. And we are looking at what we would want to do as far as purchase of incremental containers for the new site. We do have some containers that due to the better efficiency of some of our newer equipment, it's actually freed up some container. So we'll be able to move some of our existing containers that are no longer needed at our Drumheller and Medicine Hat site. So we'll be able to move to the new site.So we will be able to repurpose some of our existing containers for that. But future expansion where new containers are required, we will look to industry partners and explore the different solutions now available for new containers.
Thanks a lot for your patience. And I would like also to thank the IR team, they have been very responsive with all the messages and communications that we have been sending. And if I may take and -- talk on behalf of everyone, I think the whole team is performing very great, and we are watching for each step and announcement that you guys are doing. We are vouching for you. And hopefully, waiting for the next quarter meeting to see another impressive results, hopefully.
Amazing. Thank you so much for your support and your compliment. It really means a lot. And thank you for your time this morning.
Our next question comes from [ Zach Woods ].
I just wanted to ask a quick question on what your plans were for your fleet upgrades. Will legacy miners be sold at premiums during the bull market? Or will you hold them in storage until your energy infrastructure is built out to accommodate them?
So we're actively exploring all of those options, and I can't answer it today because we haven't made a decision.
Okay. But would that -- could you speak on would you, if the price was right for those miners?
Are you making me an offer, [ Zach ]? I think you're trying to buy something from me right now.
If you're open for it, sure. But we're pretty high. I think I might wait for the bear market to buy any more miners.
So [ Zach ], you think bear market's coming?
Bear market is always coming, just don't know when.
Well, I'm not a seller of equipment today, [ Zach ], unfortunately.
Okay. Well, that's good to know, too.
Our next question comes from [ Mike Richard ].
I just have a quick question for you. I remember hearing you talk earlier in January and February, you wanted to be the gold standard, and you were trying to diversify our revenue streams away from mining. I just wanted to hear any thoughts or any plans that you have ongoing.
Not away. Adjacent to mining. Mining is absolutely core to our business. But as you know, we do have the hosting line of business. We've also expanded on the yield side now. So I think you're up to speed with how that diversification is starting to play out. And it's still very much in support of our core strategy being mining.The other strategic nuance for us, which is new is, of course, expanding into GPU-based mining and starting to mine the Ethereum network, which we think gives us a great opportunity for incremental optionality and diversification away from just being tied to the bitcoin network and bitcoin mining economics associated with ASICs directly. So I think it's been a very busy 4 months as we've announced different portions of how that strategy is actually being executed against.
Yes. Indeed, I do like the execution. I do like -- I think the CMPs will provide value. I was just -- maybe I was making an assumption. I really thought you guys would try and diversify away from mining, keep it like core, but try to do some other types of revenue streams to try and even out the revenues throughout bull cycles and bear cycles. So is there nothing at all in that plan to diversify away for mining?
Well, hosting is a different type of revenue, right? So I think we'll continue to look at where we can grow on the hosting side of the business. And then I think the best way for me to answer is, again, I've only been here 5 months. I think we've done a lot in the area of diversification, as I've just kind of rattled off again. And I can't speak to what we might do next. But I believe we're charting that path through the execution you've seen so far.
Okay. And one last question I have. How -- what is Hut's competitive advantage versus its peers for mining? So like obviously, the bitcoin mining economics means as long as like profits to be made, mining, the network tax rate always goes up, right? People put on more and more machines. So the business model is spent -- you can need to continuously add capital to upgrade your fleet just to maintain your percentage of the whole network, right? So let's say you had 1% of the whole network, like I think you almost had last year. But if the network, the bitcoin network doubles, you essentially only have 0.5% of the network hash rate.So effectively, bitcoin mining, you always need to spend capital just to maintain the same network hash rate. So how does Hut create excess value for shareholders moving forward compared to other companies?
Yes. So I think it kind of points back to what we just talked about. We're really proud of having the largest self-mined bitcoin balance of any publicly traded miner. So all 3,500 of our bitcoin are bitcoins that we mined, and we're actively putting to work through the yield accounts, as we've talked about. And then again, our pivot, our strategic pivot with the NVIDIA purchase and going into CPU mine gives us optionality to mine other networks.And again, as I think you know those -- our expectation of the 10,000 cards that we purchased from NVIDIA from a power usage perspective, we expect that whole kind of fleet, if you will, to use less than 4 megawatts of power, and it gives us optionality to mine -- obviously, we're going to start with Ethereum, but there are other networks that can be mined as well, and it gives us the opportunity for some optionality and diversification away from being tied exclusively to the bitcoin network economics.
Okay, okay. And to kind of go further on that. So you want to start mining Ethereum, obviously, the most profitable right now. But let's say, they go proof of stake in a year or so. What are the margins on just doing a typical data center work for that side once you switch over to that eventually?
So I definitely would point you to our FAQ. If Ethereum goes proof of stake halfway through next year, there's -- we would look at something like Ethereum Classic, which is also very profitable in today's economics. So that's kind of the optionality that's there. It's -- we aren't just tied to Ethereum when we make this investment in the GPU mining cards. And that's one of the things that's really compelling about it.
And we have a follow-up question from [ Manpreet Singh ].
Jaime, sorry, I forgot to ask one more question. It's regarding your share price, actually. Since the -- since about 10 weeks ago, I'd say almost all miners have relatively gone down. Your biggest competitor from what I see is probably Bitfarms just because they're on the TSX as well. Comparatively speaking, we're -- we've lost about 65% of shareholder value. What are your plans aside from what you said to kind of correct that and get us back on our feet?
Well, you certainly know all of my plan.
I know. Is there anything that you can -- any other information you can provide? Because I mean it kind of feels like we're in the bear market right now as a shareholder.
Look, unfortunately, I can't give you any incremental information over and above everything that we've shared today. Obviously, our NASDAQ intention announcement yesterday, we think, is important. And we will continue to work to drive long-term value. And that's the way we're really looking at making decisions on how we make investments, how we look at the growth of the business. It's all about the long-term health of the business and long-term value being -- that we look to create for shareholders.
Do you anticipate future dilution in order to raise capital to further expand?
I can't speak to that at this point in time.
And speakers, we have no further questions in queue at this time.
Thank you, Sheryl. And thank you again, everybody, for joining this morning. I look forward to speaking to you again soon.
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.